You have probably been told more times than you care to remember that you need be a good grain and livestock marketer to survive in agriculture today.
It’s probably true, but it may not be as important as being a good producer.
Jay Olson, a North Dakota Farm Business management instructor at Devils Lake, N.D., wrote an interesting column about the topic in the April Dakota Farmer magazine. He says that his analysis shows that in recent years yield, not price, has driven net farm income.
Take wheat for example. The 2007-2011 wheat yield average for North Dakota Farm Business Management participants was 45.06 bushels per acre, or nearly 10 bushels per acre better than the 2002-2006 average of 35.34 bushels per acre.
“Wheat prices increased during this time, but to a large degree the increase was offset by increases in input costs. The average net price of wheat sales from 2002-2006 was $3.41 per bushel. From 2007 through 2011 the average net price rose was $6.25 per bushel, or 83% more,” he says.
During the 2002-2006 period inputs costs averaged about $295,000 per year from 2002 to 2006. From 2007 through 2011, input costs averaged $506,000 -- a 72% increase over the previous five years. Therefore, much of the increase in prices was consumed by the increase in input costs.
“If extrapolate those numbers over the entire farm, the 9.72 bushel increase in wheat yields, times the average farm size of 2,281 acres, times the average price of $6.25 we find that about 87% of the total increase in net farm income during this time was accounted for by increases in yield and not prices,” he says.
Read more at Dakota Farmer, April 2013, page 39.